From HMOs to ACOs: Meet the newest model in health care management

When critics look at health care in America, many describe a system that's fragmented, inefficient and burdened with waste.

Doctors and hospitals generally are paid a fee for every service they provide, the critique goes, so they lack financial incentives to effectively coordinate care and make sure patients get only the services they need.

Patients often have a front-row seat on the dysfunction, critics say, as they are shuffled off to specialists without needed paperwork, undergo unnecessary tests or make repeat hospital visits when medical centers don't get it right the first time.

Enter "accountable care organizations," a new structure in health management that the federal government, health insurers and some physicians hope will tame the woes. Doctors, hospitals and clinics would be given responsibility to provide care for a group of patients -- within a budget. If health care providers better coordinate care to provide good quality for less money, they can share in the savings.

This push for accountable care organizations -- called ACOs -- is driving a consolidation trend among health care companies that's increasingly being felt in Minnesota. The clearest example is a plan announced in August to combine the HealthPartners and Park Nicollet health systems into one of Minnesota's largest nonprofit health companies, with 20,000 employees, including 1,500 physicians.

HealthPartners, based in Bloomington, is an insurance company that has gotten into the hospital and clinic business in a large way.

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Anchored by Regions Hospital in St. Paul, it runs health facilities across the east metro and into western Wisconsin. Park Nicollet is a large west metro provider whose network includes Methodist Hospital in St. Louis Park.

"As an organization, we want to be accountable for the quality, affordability and experience of the patients and families that choose us," said Dr. David Abelson, chief executive officer at St. Louis Park-based Park Nicollet.

Methodist Hospital in St Louis Park. (Pioneer Press: John Doman)

"Delivery systems for the most part in the past said: 'We will be responsible for the quality and experience, but not affordability,' " Abelson said. "That is the fundamental difference."

CONSUMER CONCERNS

The idea remains controversial.

Some health policy researchers question whether consolidation in the name of ACOs would allow big integrated systems of doctors and hospitals to extract higher prices from health insurance companies. Doctors, meanwhile, worry that the ACO will be just another structure like HMOs, which in the 1990s put physicians in the difficult role of gatekeepers.

"In an ACO, doctors could become double agents," said Dr. Robert Geist, a physician in North Oaks. "They could have two roles -- one in which they wear white coats as caregiver, and another where they're agents of the ACO, which makes money by restricting care."

And in Minnesota, there's a history of consumer and patient protection concerns about insurance companies and health care providers like doctors and hospitals operating under one corporate umbrella.

"My concern is that these ACOs will ration health care," said Mike Hatch, the former Minnesota attorney general who more than a decade ago pushed for a split in the corporate alliance between Allina, a large hospital and doctor group based in Minneapolis, and Medica, a health insurance company in Minnetonka.

"The tragedy is, they're going to do it in a way where the patient isn't going to know," Hatch said.

Regions Hospital in St Paul. (Pioneer Press: John Doman)

"You've got the corporate health provider who's going to get paid in many cases with a reward if they save money. ... Referral patterns are going to get very restricted."

But the change seems inevitable.

POLITICS ASIDE

The Affordable Care Act of 2010, which Congress passed to overhaul the nation's health care system, spurred a lot of interest in accountable care organizations by giving provider groups the chance to become ACOs in the Medicare health insurance program.

Meanwhile, a growing segment of the commercial health insurance market is moving to new models of paying for health care. Insurers in Minnesota argue that they were making market-driven moves toward ACO-style payment reform before the federal legislation.

Republicans have vowed to repeal the Affordable Care Act if they win control of the presidency and both houses of Congress in the November election, but even if that happens some think accountable care organizations will survive.

"A Republican sweep will ... not change the fact that the U.S. government needs to make a $4 trillion adjustment in the federal budget deficit," said Dr. Kent Bottles, a health policy expert at Thomas Jefferson University School of Population Health in Philadelphia.

Republicans and Democrats "agree that transitioning from fee for service to global payments in health care will be necessary in order to deal with the budget deficit," Bottles wrote in an email. "The consolidation of the health care industry will continue no matter which party prevails in the November election."

PLAYING OUT LOCALLY

Locally, the potential for accountable care organizations to improve quality while lowering cost will be put to the test if the merger of HealthPartners and Park Nicollet goes through. It awaits federal approval.

In some ways, HealthPartners already fits the ACO mold since it is both a health insurer and a large operator of hospitals and clinics. One of the central ideas behind accountable care organizations is that health care providers -- doctors, hospital and clinics -- will take on some of the financial risk and thereby control care costs, said Dr. Elliott Fisher, a researcher with the Dartmouth Institute who has been one of the leading proponents of accountable care organizations.

"Everyone believes that risk-bearing will be important because it makes people pay attention (to costs)," Fisher said in an interview.

"Insurers bring real skills to the table that most medical groups don't have," he said. "Who are the high-risk patients? How do you share a financial risk for those things that doctors should be reasonably held responsible for, but not put them at risk for things that are beyond their control? ... Insurers also have access to data that can really improve care if it's made available to clinical groups."

The merger would give Park Nicollet a close relationship with the health insurance arm of HealthPartners. For HealthPartners, the deal would create a clinical system that better spans the metro area.

The geographic footprint of HealthPartners' hospitals and clinics skews to the east metro and also includes Lakeview Hospital in Stillwater and two hospitals in western Wisconsin.

HealthPartners is involved in an ACO-style demonstration project in the northwest metro that involves its insurance customers and Allina.

"I think ACOs can be a good thing," said Peter Benner, the former executive director for AFSCME Council 6, a labor union for government employees, who is working with the state and a local nonprofit group on several health quality improvement projects.

"There are clearly a set of issues around management of care that are far more easily done if the management is not an add-on or a wraparound where the health plan or disease management vendor is outside the care organization," Benner said. He called the proposed merger "encouraging."

NOT THE BIGGEST

Last year, HealthPartners and Park Nicollet had combined operating income of about $244 million on about $5 billion in revenue. HealthPartners was the larger and more profitable of the two, with operating income of nearly $220 million on $3.86 billion in revenue.

While the new company would be big, it wouldn't be the largest health care provider in the Twin Cities.

In a report this month, analysts with Standard & Poor's wrote that if the merger obtains regulatory approval, the new HealthPartners would control about 15 percent of the Twin Cities health care market. Allina, however, would still have a commanding 32 percent share of the market followed by Minneapolis-based Fairview Health Services with 19 percent.

Meanwhile, both Allina and Fairview have made their own moves this year to develop ACO models.

In March, insurer Medica announced that it would begin offering insurance policies that let consumers opt for care that's coordinated by an ACO the company has developed with Fairview. This month, Eagan-based Blue Cross and Blue Shield of Minnesota announced a similar arrangement with Allina.

"Insurers are doing all sorts of things to reinvent themselves," said Bottles, the health policy expert at Thomas Jefferson University.

"Consolidation is occurring across the country because people think that larger size will allow you to make the capital investment for information technology that you will require," he said. "It also allows you to be more geographically diverse."

CASE BY CASE

Nationally, the Federal Trade Commission has taken note of the trend and challenged mergers that it believes would drive up health care costs. A challenge in the case of HealthPartners and Park Nicollet is unlikely because of their distinct geographic footprints, said Roger Feldman, a health policy researcher at the University of Minnesota.

Still, Feldman says he remains concerned that as large health systems get bigger through consolidation, they will demand higher reimbursements.

John Kralewski, another health policy researcher at the U, said that one of the key questions with the HealthPartners merger is whether costs will increase along with the new organization's market power.

"If we were operating under the fee-for-service method, as we have been for many years, my guess is that consolidation would increase costs because they'd have more bargaining power," Kralewski said. "And even though they will probably realize some efficiencies, the bargaining power will increase the cost."

"However, with the new payment systems, that may not be the case," he added. "Consolidation might drive costs down because of their ability to realize efficiencies in the way they provide care."

Officials with the two companies acknowledge this, and say staff cuts are not being considered as part of the merger.

Doctors and consumer advocates worry that patients will suffer from ACO restrictions that are much like those that limited patient choice in HMO plans offered during the 1990s.

But Fisher said the ACO demonstration projects in Medicare don't limit patient choices of doctors and hospitals. Local insurers say the ACO-style products they're developing also lack outright prohibitions on patients seeking care beyond the ACO's preferred network of doctors and hospitals, although patients will pay more if they do so. Similarly, clinics within an ACO would be able to accept patients with outside insurance.

"No one liked the gatekeeping of the 1990s, and doctors didn't like being gatekeepers," said Fisher of the Dartmouth Institute. "The new model allows choice. The intention is that this will encourage those organizations to reach out and take great care of you."